Although private market funding for insurtechs hit a new high in 2021, valuations of public firms have underperformed vis-à-vis the general stock market.
Private capital continued to flood the insurance industry in 2021, driving total investments in insurtechs to new heights across all insurance types, investment stages, and regions. To meet the demands of customers seeking smarter and more efficient products and services—and to compete more effectively with insurtechs—many insurance incumbents are fast-tracking next-generation “bionic” operating models that combine the best of human and technological capabilities. The digital transformation of the industry appears to be in high gear.
Those are some of the findings that FinTech Control Tower by BCG cites in its annual State of Insurtech report. However, some caution is warranted. Although the report paints a generally positive picture, it notes that many insurtechs that have recently gone public have dramatically underperformed the market, exposing a significant disconnect between private and public valuations. This holds lessons for investors who may need to rethink their valuation methodologies, for insurtechs positioning themselves prior to an IPO, and for incumbents engaged in their own complicated digital transformations.
The lackluster market performance of newly minted public companies did not put a dent in private investment. Insurtechs raised $14.4 billion across 644 deals in 2021, surpassing the total raised in 2020 by about 87% and reaching a cumulative ten-year total of $43.8 billion from 2012 to 2021. To put that in perspective, it took them seven years (from 2012 to 2018) to raise $15 billion. (See Exhibit 1.) Megarounds exceeding $100 million remain a key growth driver, as approximately half of the capital invested in 2021 went to 37 companies.
Investments were up across all insurance types, but private investment continued to flow most strongly into the property and casualty (P&C) sector. Our report notes the following sector-by-sector developments:
The investments in insurtech were broad based, reflecting the wealth of opportunities in the industry for digital transformation. (See Exhibit 2.) “Our 2021 instech member survey revealed that the potential to improve underwriting through automated and algorithmic underwriting is top of insurers’ priorities for new technology to support innovation,” said Matthew Grant, a partner at the UK-based research company InsTech. “The use of marketplaces and platforms to improve the ways to trade risk and to access data and analytics was a close second. The topics of emerging risks, climate change, and enhancements in data ingestion and extraction also made it into the top five. We found that there remain opportunities to meet demand for new tools and analytics to help assess emerging risks such as cyber, crypto, and supply chain.”
As private investment flooded into insurtechs, incumbent insurers kept pace by launching digital initiatives across the product spectrum. In February, Chubb announced the launch of “Blink by Chubb,” a cyber insurance product for millennials starting at $5.28 a month. In March, in cooperation with Google Cloud and Allianz Global Corporate & Specialty, Munich Re announced a new project called “Risk Protection Program” that aims to provide customers with a higher level of security by covering technical and financial aspects of risk management. In May, Aviva launched DigiCare+, an app designed to help customers prevent, detect, and manage common health issues. In December, American Family partnered with Cambridge Mobile Telematics to create “MilesMyWay,” an auto insurance program that rewards drivers for driving less.
“Beyond the active development of our own innovative propositions, Munich Re also believes in building up those in the market who are leading the way in the insurtech scene,” said Lucinda Chow, innovation manager at Munich Re. “This is often achieved via the creation of long-term partnerships, where we support insurtechs and primary insurers through a ‘skin in the game’ approach that includes our backing as capacity providers. We additionally tailor our in-house expertise for our partners, which spans the value chain, such as professional actuarial pricing and claims consulting.”
Meanwhile, firms in industries adjacent to insurance are partnering with insurtechs and incumbents. In April, German digital bank N26 partnered with Germany-based Simplesurance to launch a new on-demand insurance product for smartphones. In September, UK-based money app Monese partnered with Belgium-based Qover to launch “Bills Protection,” a seamless safety net for paying regular bills. In October, Italian digital bank Buddybank teamed with Switzerland-based Zurich Connect to offer car and motorcycle insurance through its app.
Corporate giants also sought to capitalize on synergies between insurance products and their existing offerings in 2021. US-based electric carmaker Tesla extended the availability of its real-time data car insurance product to car owners in Arizona, Illinois, Ohio, and Texas after launching the product in California in 2019. India-based PhonePe received an insurance brokerage license from the Insurance Regulatory and Development Authority of India, becoming a direct agent authorized to sell life and general insurance. And US-based Amazon launched the “Amazon Insurance Accelerator,” offering sellers product liability insurance through a network of insurance providers, including Next Insurance, in the US.
In another sign of investment bullishness, private investments increased across all stages of development, including seed funding, early-stage VC, and late-stage VC.
Early-stage VC accounted for approximately $4 billion—up about 97% compared to 2020—driven by Series A funding (up 117% year-on-year). Notable deals included a $210 million round in Singapore-based digital insurer Bolttech, a $135 million round in US-based digital health insurance intermediary EasyHealth, and $100 million round in US-based digital home insurance intermediary Slide.
Late-stage VC funding totaled approximately $7.6 billion, up about 92% year-on-year, driven by 27 mega-rounds worth approximately $6.2 billion—11 at Series C, 13 at Series D, and 3 at Series E+. (See Exhibit 3.) The largest three rounds of funding included two Series D and one Series C:
“To get a better sense of how innovation is going on in insurance, go in-depth and beyond the few megarounds that attracted most of the money invested last year,” said Florian Graillot, founding partner at Astorya.vc. “There is a lot happening alongside the value chain and toward every business line.”
As these numbers attest, VC firms have been the most active investors in the insurtech space over the past five years, accounting for about 76% of contributions in the P&C Insurance and Health Insurance categories. Incumbent insurers ranked third, with a similar product mix. Although incumbents were involved in 110 deals in 2021, a year-on-year increase of 10%, their participation rate as a percentage of total deals has declined over the past two years as they focused their investments on fewer deals in established companies that they considered safer bets. (See Exhibit 4.)
Not only is insurtech financing up in aggregate, but it’s also growing across all geographic regions. Insurtechs in the Americas attracted 62% of the global funding—approximately $9 billion, up about 84% compared to 2020. (See Exhibit 5.) North America dominates the region—not surprisingly, given that the US is the world’s largest insurance market and has a well-developed insurtech ecosystem thanks to favorable regulations, easy access to capital, and deep talent. Digital carriers and intermediaries raised 29 of the 39 megarounds in 2021.
Latin America is a fast-growing region that saw $190 million of investments in 2021, an increase of about 179% over 2020, driven in particular by Brazil, Mexico, and Chile. Notable rounds included a $60 million Series B in Chile-based collective wellbeing platform Betterfly, a $36 million Series B in Brazil-based telematics-powered digital insurer Justos, and a $20 million Series B in Brazil-based general P&C full-stack digital insurer Pier.
"These investments in Latin America are expected, given the evolution of the region in recent years. After the fintech wave with cases like Nubank, Creditas, and Neon, now insurtechs are surging with better solutions for the customers,” said Igor Mascarenhas, CEO of Pier.
Meanwhile, Europe, the Middle East, and Africa (EMEA) registered a record-breaking $3.3 billion of capital inflows, surpassing 2020 funding by 137%. The region’s share of global funding increased by 5 percentage points―from 18% in 2020 to about 23% in 2021—driven by large equity investments in insurtechs headquartered in Western and Northern Europe. These firms attracted $2.9 billion, accounting for 88% of the regional total in 2021.
The three highest-funded countries in EMEA were the UK, Germany, and France:
The Asia-Pacific (APAC) region accounted for approximately $2.1 billion of equity financing―up 47% compared to 2020—representing 15% of the global total in 2021. East Asia and South Asia were the main drivers, together attracting approximately $1.6 billion, or roughly 77% of the APAC total. Among the notable deals were funding for digital intermediaries in China, including Datong and Yuanbao, and investments in digital insurers in India, including ACKO and Digit Insurance. Although the insurtech field remains nascent in Southeast Asia and Australia, they registered the largest percentage increases year-on-year in 2021―about 212% and 115%, respectively. Notable deals included a $210 million Series A round in Singapore-based Bolttech, and a $73 million Series C round in Australia-based embedded insurance platform Cover Genius.
Continuing a trend that we saw in 2020, a number of insurtechs were acquired or went public in 2021. Three M&A deals involving the purchase of an insurtech were especially notable:
Meanwhile, some deals flipped the script, with insurtechs acquiring incumbent insurers. Among these M&A deals were the following:
As for going public in 2021, ten insurtechs either had an IPO or were purchased by a special-purpose acquisition company, raising about $6.7 billion in total. These were US-based digital health insurers Bright Health ($924 million), Oscar Health ($1.4 billion), Alignment Healthcare ($490 million), and Clover Health ($1.2 billion); China-based digital mutual platform Waterdrop ($360 million); US-based digital home insurer Hippo ($1.2 billion); US-based digital motor insurer Metromile ($230 million); US-based title insurer Doma ($645 million); India-based digital insurance broker Policybazaar ($790 million); and US-based risk assessment platform Farmers Edge ($125 million).
Over the past two years, about 20 insurtechs went public across the globe. As part of the research for our report, we calculated the relative stock price performance of ten of them―five “disruptors” that are targeting the same revenue pools as incumbents, and five “enablers” that are geared more toward supporting incumbent players. All ten underperformed the S&P500 and the S&P Global 1200 Insurance indices from March 2021 to February 2022, and some of them lost half their market value. (See Exhibits 6 and 7.)
The performance of these ten companies stood in stark contrast to their funding activity and valuations in the private market. Many of the disruptors are coping with underwriting challenges, as evidenced by high and deteriorating loss ratios and an absence of profits. They are clearly struggling to justify their lofty valuations. Interestingly, the enablers have underperformed as well. They leverage SaaS business models, which gives them light infrastructures and little to no balance sheets, which should theoretically make it somewhat easier for them to reach profitability.
It’s worth noting that fintechs in general have underperformed after going public, so the problem is not confined to the insurtech sector. Nevertheless, investors, private insurtechs, and incumbents should ask themselves what the current gap between public and private valuations means for their businesses. Investors may need to reassess their methodology for evaluating private companies and for determining the magnitude of their investments. Insurtechs that are scaling toward their own IPOs might consider remaining private for a longer period or adopting alternative ways of exiting the market, such as through strategic acquisitions. Finally, incumbent insurers can learn from the experience of their digital competitors as they pursue their own innovation initiatives and digital transformation projects.